Dow gains 260 points as stock market jumps on news out of China

Stocks rebounded sharply Monday as the global market welcomed recent statements by Chinese leaders, who are looking to boost that country’s economy through stimulus and increased foreign trade.

The Dow Jones Industrial Average gained more than 260 points, or 1.5%, to inch closer to a return to the 18,000-point mark. The blue-chip index suffered major losses Wednesday, when it dropped more than 290 points as part of a market-wide sell-off following poor economic reports and investors’ ongoing concerns about the strong U.S. dollar. Last week’s sell-off turned the Dow negative for the year, but Monday’s gains market the Dow’s best daily rise since early-February, putting the index in the black for 2015.

The S&P 500 and the Nasdaq composite also received boosts on Monday, with each index gaining more than 1%. The tech-heavy Nasdaq’s gains put the index roughly 100 points away from the all-time record close (not counting inflation adjustment) it last touched shortly before the dot-com bubble burst in 2000.

The Shanghai composite gained 2.6% during Monday trading after the Chinese government revealed details of a new initiative meant to expand trade between the country and others across Asia, Europe and Africa. Meanwhile, over the weekend, the head of China’s central bank spoke about the growing strength of the U.S. dollar and hinted that there could be further economic stimulus measures to boost the country’s slowing economy.

Monday’s gains in the US came amid a flurry of merger activity from the healthcare industry that sent several stocks soaring. UnitedHealth UNH said Monday it is paying $12.8 billion for pharmacy benefits manager Catamaran TK, while Teva Pharmaceuticals TEVA announced its own $3.2 billion deal for Auspex Pharmaceuticals ASPX. Another pharma company, Hyperion Therapeutics HPTX, will be acquired by Ireland’s Horizon Pharma HZNP for $1.1 billion.

Corporate profits in 2015 are looking gloomy

Most commentators have blamed the recent market turbulence on the Federal Reserve. Rising interest rates can spook investors. But stocks may be falling for another reason: profits.

The first quarter is coming to a close, and things are not looking so good. Analysts predict that, on average, earnings at companies in the S&P 500 for the first three months of the year have fallen 5% from a year ago, according to FactSet. That would be the first time profits at the biggest U.S. companies have declined since the third quarter of 2012, and the largest dip since the third quarter of 2009, when profits dropped nearly 16%.

For the year, analysts are predicting the profits of companies will rise, but only slightly, by 0.4%, according to estimates from Standard & Poor’s. That estimate is based on profits improving throughout the year, which would be a good thing. But analysts are often overly optimistic about the fourth quarter, particularly when it is still six months away. If the those end of the year predictions don’t pan out, then we could see a full year profit decline.

Stocks tend to follow profits, but they haven’t for a while. Profit growth dropped to 6% last year, from 8% in 2013. But that didn’t stop the market from rising 13% in 2014. That divergence has pushed the price-to-earnings ratio forthe S&P 500 to 17 times based on this year’s projected earnings, which is the highest it’s been in more than 10 years, and seems high for a market in which profits could soon be shrinking. The average p/e ratio for the past 10 years has been 14.

The good news is that the worst news is concentrated in one sector: energy. Exclude energy companies and profits for the S&P are expected to rise 3% this year. What’s more, the big banks are looking like they had a better than expected first quarter, which should push that number up further.

Still, the all-in number matters. Sam Stovall, chief strategist at S&P, says we may have already entered a so-called profit recession, and that would be a bad thing. Stovall says there have only been three instances since the end of World War II in which the S&P’s annual profit has fallen, and the rest of the economy hasn’t ended up in a recession. However, 2012 was one of them.

Add to that the fact that interest rates are set to rise, and there’s a lot of worrisome stuff that could be coming investors’ way this year. Indeed, if profits were rising, investors probably wouldn’t be as worried about the looming rate hikes. But the fact that profits are already stalling before interest rates have even started to climb will certainly make investors more nervous when rates do go up.

“The Fed may want to push rates higher, but that’s only going to make the dollar stronger, which will hurt profits more,” says Stovall. “The market has a lot of headwinds right now.”

Dow turns negative for the year as stocks plunge

The Dow Jones Industrial Average turned negative for the year on Wednesday after a market wide sell-off sent U.S. stocks plummeting amid weak economic data and continued concerns over the strong U.S. dollar.

The Dow Jones dropped more than 290 points, or 1.6%, to 17,718 points Wednesday afternoon as the U.S. market saw its third straight day of losses. The blue chip index is now more than 100 points in the red for the year after a few turbulent months to start 2015. After a strong February, the Dow is down nearly 2.3% in March.

Meanwhile, the Nasdaq composite fell 118 points, or 2.4%, to 4,876 points. The tech-heavy index has slipped by roughly 150 points since closing last Friday within almost 20 points of its all-time record close (not counting inflation adjustment), which it set just before the dot-com bubble burst in 2000.

The S&P 500 fell 30 points, or 1.5%, to finish Wednesday at 2,061. The benchmark index is down 2.3% so far this week.

The Commerce Department reported Wednesday that durable goods orders fell for a sixth straight month in February thanks, in part, to a strong dollar and a drop-off in global demand. Investors also appeared to be girding themselves for what could be a disappointing earnings season for the current quarter after many companies already blamed the strong dollar for poor performances after the most recent quarter.

Wednesday’s losses came after the news that HJ Heinz will merge with Kraft Foods Group KRFT, in a deal brokered by Berkshire Hathaway and private equity firm 3G, to form a massive new food company. Kraft’s stock jumped more than 35% during Wednesday trading.

The rest of the U.S. market suffered on Wednesday, though, including share declines for major tech outfits such as Microsoft MSFT, IBM IBM and Intel INTC. Several companies in the semiconductor industry also saw their shares decline, including Avago Technologies AVGO, Applied Materials AMAT and NVIDIA Corp. NVDA.

A quick poll: where businesspeople in China think Alibaba’s stock is headed

Alibaba’s stock is down 20% this year, analysts are slashing their price targets, and over 300 million previously locked-up shares are allowed to hit the market for the first time today—which means only one thing: it’s time to speculate what happens for the rest of the year.

Investors seem to have fallen out of love with the Chinese tech giant after a string of bad news this year that included the company’s very public skirmish with a Chinese regulator. Alibaba is no longer the invincible Chinese e-commerce star that stockbrokers from Manhattan to Des Moines thought it was. Or is it?

For now the questions are, Can China’s most powerful e-commerce company recover some of its swagger from last fall? Can it put the criticism of fake products and a weak quarter behind it? Or will Jack Ma & Co. be left explaining, again, how they perfectly timed the market’s top when staging an IPO?

You can turn to a couple places for answers. There’s a gaggle of analysts who opine on Alibaba’s fortunes for a living. Unfortunately, Wall Street analysts don’t have a strong record when it comes to predicting the future—and nine out of ten of them don’t even live in China, where Alibaba does almost all of its business.

This brings up an important point. The great stock-picker Peter Lynch said you should buy what you know. Warren Buffett, probably the best investor in the history of man, follows a similar philosophy—sticking to U.S. businesses he understands like Coca-Cola and GEICO. Do many people in the United States understand Alibaba’s core businesses Taobao, Tmall, and Alipay? Of course not. Living in the U.S. makes tracking Alibaba almost as hard as drinking as much Cherry Coke as Buffett in a day.

That’s when it pays to be local. To have boots on the ground, like the military says.

That’s why I decided to stage an informal poll recently about Alibaba. I was curious what some of the smartest business people I know in China think about the company’s (and stock’s) prospects. Last week I sent an email to 31 businesspeople and consultants I know working in China, asking a simple question: where do you think Alibaba’s stock is going for the rest of 2015? Up? Down? Or back down to its IPO level?

Some of these people run businesses. Others track them as consultants. Some are Chinese, others are foreigners who have been working in China for years. I didn’t consider anyone an Alibaba expert. But all know something about Alibaba’s prospects thanks to osmosis.

Most of those who responded wanted to be clear about why they picked their answer. For example, one person recommended shorting the stock, reasoning that while people may be excited about Alibaba expanding the U.S. by opening a cloud service in Silicon Valley, that might only gloss over Alibaba’s struggles before the stock continues its downslide.

Of the 31 people I asked about BABA, I got 10 responses. Of those, four said the stock would rise by the end of the year. Six thought it would continue falling for the rest of 2015 (one said it would make its way all the way back to $68 a share—its September IPO listing price). It’s not a statistically significant sample by any means. That wasn’t the point. The point was to glean a little about what top business people in China, who work far outside Wall Street’s spin-zone and are surrounded by Alibaba’s products and platforms everyday, think of the stock’s (and company’s) chances.

Those who thought the stock is headed down had a couple reasons for thinking so. The first was that the excitement around Alibaba has evaporated. The IPO that had Idahoans talking about Taobao is a distant memory. Alibaba is back to being another business listed on the New York Stock Exchange. Its been months since David Faber flew to Hangzhou for an exclusive interview with Jack Ma. Things can’t stay in the spotlight forever.

Underperforming: Tencent has done better than Alibaba since the latter went public in September.Source: Yahoo

Of those who thought BABA would rise, the strength of the business was a common reason given. The company commands four-fifths of the e-commerce market in China, which happens to be the world’s largest at $400 billion and is growing 25% a year. Alipay is the country’s dominant online payment system. Tmall is such a strong platform in China that Alibaba rival Amazon.com AMZNjust opened its own store there.

Another reason: Alibaba has cherry-picked top talent in China, one respondent said. Alibaba’s massive spending on startups in China and overseas is bringing key executives into the fold. Last year it acquired UCWeb, a Chinese mobile web browsing company with respected executives like its CEO Yu Yongfu, in the country’s biggest Internet deal.

No-one can divine where Alibaba ends the year. But if you wanna get close, you might start by listening to the business people who are surrounded by Alibaba every day.

Stocks mount a strong rally ahead of the Fed’s rate meeting

The stock market started the week with strong rally Monday, rebounding from last week’s losses. U.S. stock indexes showed strong gains in afternoon trading, while the U.S. dollar declined and oil prices dipped to their lowest point in six years.

The Dow Jones industrial average jumped 228 points, or 1.3%, Monday afternoon. The blue-chip index has climbed back to within range of the 18,000-point mark after it lost more than 330 points in one day last week on investor concerns over the pending federal interest rate hike. Those losses saw the Dow and the S&P 500 briefly turn negative for the year as investors worried that the Federal Reserve could raise rates as early as June.

The S&P 500 also gained more than 1.3% Monday to recover its own losses from last week. The Nasdaq composite, which dropped more than 80 points last Tuesday, finished Monday up 1.2%, though the tech-heavy index remained several points off its opening point from a week ago.

The U.S. dollar index was down 0.5% on Monday and the dollar ceded ground to the euro, which had recently fallen to its lowest point in about 12 years. The euro’s surge helped European markets on Monday, with Germany’s DAX gaining 2.2% and London’s FTSE 100 rising 0.6%.

Meanwhile, domestic investors reacted favorably to the U.S. dollar’s decline, with the hope being that the drop could stall the Fed’s planned interest rate hike. Wall Street currently awaits the end of a Fed meeting and a policy statement coming Wednesday that could see the central bank remove the word “patient” from its description of the approach it plans to take with the upcoming rate hike.

Oil prices also plunged during Monday trading as the price for a barrel of West Texas Intermediate crude dipped nearly 4% at one point to hit $43 — its lowest point in six years. Oil prices have dropped more than 50% since mid-2014 due to a global supply glut, but prices had climbed back above $50 per barrel in February before sinking again over the past week. The price of Brent crude oil also fell on Monday, dipping more than 2% to nearly $53 per barrel.

Stocks tumble as the dollar continues to strengthen

The S&P 500 index saw its third straight weekly decline as the dollar resumed its climb and lower oil prices hit energy shares.

The rise in the U.S. dollar index, which saw its fourth straight weekly gain, added to worries about the currency’s impact on U.S. multinationals’ earnings.

The Dow closed the day down 146 points, or 0.8%, but off its earlier lows having fallen as much as 265 points earlier in the day. The S&P 500 lost 13 points, or 0.6%, while the Nasdaq Composite dropped 22 points, or 0.4%.

The dollar hit a fresh 12-year high against the euro on Friday as dollar-buying momentum overcame soft U.S. economic data that would normally weaken it.

The S&P energy index fell 1% and was among the biggest decliners of the 10 primary S&P 500 sectors.

Crude oil fell 4.7% to settle at $44.84 a barrel after the International Energy Agency said a global glut continued to build and U.S. oil production showed no signs of slowing. The commodity has fallen in six of the past seven sessions and is down almost 60% from a June peak.

Investors are focused on next week’s Federal Reserve meeting, which could provide further insight into when the first rate increase will come.

Over the past 14 sessions, the S&P has had a correlation of -0.96 to the dollar index, meaning that stocks consistently fall on days when the dollar gains. Perfect inverse correlation is -1.0.

“The stronger dollar, the continued hammering of the euro, equals continued lower equity prices ahead of the Fed comments next week,” said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.

“We’ll know more of the Fed’s thinking on Wednesday, but right now most people are expecting a rate hike to come in June and the equity markets not to be very receptive of that.”

While the trend has been mostly lower, the market has been volatile. This week The S&P posted both its biggest one-day gain since February and its biggest one-day loss since January.

Their waiting list of more than 700,000 people would suggest they are right.

Tenev and Bhatt launched pick-up-and-go brokerage app Robinhood (no connection to the charity foundation of Paul Tudor Jones) late last year, and began with an invite-only beta. Word-of-mouth buzz built the app’s waitlist up to more than 700,000 people. Today, Robinhood has announced it is letting in everyone on the list, and its service will now be available without a wait. The company also suggested to Fortune that it has plans for an app catered to the Apple Watch. It has raised $16 million to date, from investors that include Index Ventures and Andreessen Horowitz.

Robinhood’s selling point is that it allows for quick buying and selling of stocks—for now, only U.S. stocks on the New York Stock Exchange and Nasdaq—with no commission per trade and no minimum balance required.

Big brokerages like E*Trade ETFC and Scottrade charge transaction fees of $7 to $10 per trade, and both require minimum balances of $500. The Robinhood web site even highlights these competitor fees in a table. “We set out to create an app that was free and didn’t have account minimums, and I think that by itself makes it appealing to younger people,” said Tenev in a visit to Fortune in December. “We definitely wanted to speak to the younger generation. But the hard part with that is, how do we get a younger generation of Americans to do this action that they have never done before?'”

That action is: caring about the stock market. After meeting at Stanford, Tenev and Bhatt created Chronos Research, a financial services software company. They believe that most college students, or recent college graduates, don’t yet invest in stocks because they are turned off by the large fees. (They don’t, for the most part, believe there’s a lack of interest.)

But beyond its no-fee value proposition, Robinhood is winning with mobile-obsessed millennials thanks to its cleverly simple design. After an easy sign-up process (the company does a background check that takes just a couple of days before you can begin buying and trading), the app shows you a screen of “popular” stocks among its users. (Think “millennial,” so think of hot tech and young brands: Tesla, Lululemon, Under Armour, to name a few.)

You may choose a few to “follow,” or not, and then users can hook up the app directly to their bank account and begin buying. As you scroll through a list of stocks, the tickers are in green if the stock is up that day, red if down. In another thoughtful touch, the entire background of the app screen is green if the market is open, black if currently closed.

This app has hit its target audience on the bullseye. Robinhood won’t say how many members it has, but says its average user is 26 years old—Tenev and Bhatt are both under 30—and over 25% of users had never used a financial investment product before. On average, each customer makes five trades a month. Robinhood calculates that in total it has saved its users $5 million in trade fees in just the last month.

The app is free to use, but makes its money two ways: by taking interest from uninvested cash balances, and by taking interest from customers who trade on margin using a line of credit. (It hasn’t yet added this feature for all, but is testing it in beta.) “Right now, we aren’t making very much money, because we aren’t taking much from cash balances,” says Bhatt. “When we roll out margin trading, I think we will do very well, because people keep asking for that feature.”

Like Airbnb in its early days, Robinhood will earn points for design. There is a tactile pleasure in swiping up (the cofounders owe a tip of the hat to Tinder) to confirm a stock purchase. The ease of use is what attracts young people, but it could also be a danger to their wallets. College students have expendable cash, often from their parents, and an app that allows them to play in the stock market, with no knowledge, may raise concerns.

That possibility is, “something we talk about multiple times a day,” says Bhatt. “And we heard a lot of that rhetoric when launching the product. But I think it’s off the mark. Here’s why: the younger folks, in their early 20s, investing on Robinhood, it’s typically just a few hundred bucks. If you lose like $300 in your 20s, it’s the equivalent of, ‘Oh crap, I dropped my iPhone in the toilet.’ The stakes are low when you’re young. It’s just not a big deal.”

That may be true for most, though one can still imagine a wealthier student spending thousands, gobbling up shares of a single hip stock. Of course, nothing was stopping college kids from buying stocks in the past—except perhaps the fees and other bumps in the process with larger services.

Robinhood could have cut down on this risk with content or tips, but the cofounders say they considered that and made a conscious decision to steer clear. Instead, later this year they plan to release a Robinhood API, in the hopes that stock sites like Yahoo Finance YHOO will connect on top of the app. It will also integrate with certain investment advisors, if users want to pay a fee for tips and advice. “It’ll be the electronic equivalent of sitting down with a grey-haired gentleman in a Fidelity location in your neighborhood,” says Bhatt. He believes most investing news and analysis online today can’t be trusted anyway.

Indeed, the lack of any extra content whatsoever is what makes the app as fun to play with as Snapchat or Tinder. It is uncluttered, even addictive, which may sound strange in reference to a stock-market product. Bhatt says that he and Tenev took design inspiration from the mobile email app Mailbox.

Do the founders have high hopes of unseating Fidelity, E*Trade, and other services? “That would be great,” says Bhatt, “but we just don’t have the resources yet to expect that to happen.” Nevertheless, the big dogs may have already taken notice: in January, Fidelity FNF launched a location-based stock-picking app (the Times called it “Grind for stocks”) that sounds aimed at young people. When asked about that product, Bhatt scoffed.

Dow drops 300 points as a strong jobs report brings rate hike fears

A strong jobs report is supposed to be good news, but investors did not appear to get that memo Friday, as U.S. stocks suffered a broad sell-off after the Labor Department said the economy added a solid 295,000 new jobs in February.

The government data exceeded expectations and drove the nation’s unemployment rate down to 5.5%, which triggered investors’ concerns that the improving economy could result in the Federal Reserve raising interest rates sooner than the market had anticipated.

The Dow Jones industrial average fell more than 300 points in afternoon trading Friday, but closed just above that level, and finished the day down 1.5%. It had already been an up-and-down week for the blue-chip index, which recorded its latest record close on Monday before the market began a steady decline throughout the week, leaving the Dow off by roughly 1.8% for the week.

Meanwhile, the Nasdaq composite continued its retreat from 5,000 points — a mark the index crossed earlier in the week for the first time since the dot-com bubble burst in 2000. The tech-heavy index tumbled more than 50 points, or 1%, on Friday and finished the week in the red. The S&P 500, which also reached record highs earlier in the week, dropped about 1.4% on Friday to end the week at a loss.

The Fed has maintained in the past that it will take a “patient” approach to its eventual interest rate hikes, but Friday’s strong employment numbers forced many investors to adjust their forecasts for when such an increase will take place. Fortune’s Chris Matthews noted Friday that the February jobs report leaves the Fed with a difficult decision to make as 5.5% unemployment essentially meets the Fed’s standards for full employment, which would mean an interest rate hike would be imminent. However, the Fed will also need to consider whether it should give the market more time to produce jobs for the long-term unemployed who have fallen out of the workforce.

The U.S. market also received a shake-up on Friday morning with the announcement that Apple AAPL, the country’s largest company by market value, will be replacing AT&T T on the Dow index.

Here’s why Nasdaq 5000 should spook you

On Monday, the Nasdaq Composite index hit 5000 for the first time since March 9, 2000. The number invoked the ghost of tech bubble’s past, most specifically the dot-com one. Back in 2000, the technology-heavy Nasdaq hovered above 5000 for just two days. After that, it plunged 75%.

But on Monday, commentators brushed away concerns that we might soon see a repeat of that rout. They argue that the Nasdaq is not really as high as it was back then, not when you adjust for inflation. Do that and the Nasdaq would have to rise another 2,000 points to 7,000 to be worth as much as it was back in 2000. Also, the composition of the Nasdaq has changed. The companies included in the index are more stable than they once were. No Pets.com here. The average company in the Nasdaq has now been around for 25 years, up from 15 in 2000. And most of the big companies in the index make money. And there are fewer of them, 2,500 versus around 5,000 back in 2000.

The last point I don’t get at all. When is less diversification ever better for the investor? Just the same, it’s an argument that the Nasdaq itself began to spoon feed to investors and the media last year (falling stocks are bad for business), and some outlets are parroting it back.

Plenty of commentators are calling attention to the valuation of the companies in the index as a way of saying that things are looking safe. Look at the price-to-earnings multiple of the Nasdaq. Yes, the price is back to where it was 15 years ago, but the P/E is no where near where it was back then. So, at least compared to earnings, Nasdaq stocks are not as highly priced as they were back then.

This is true, but don’t read too much into it.

Back in 2000, the 20 largest companies on the Nasdaq, a group that was led by Microsoft MSFT, had an average P/E, based on the past 12 months of earnings, of 395. That was, in retrospect, too high. Today, the average P/E of the top 20 stocks in the Nasdaq (now led by Apple) is 108. Take out Amazon and eBay, both of which had no or minimal earnings in 2014, and the multiple drops to 27, which is high, but, you know, not bubbly high.

But here’s the thing: The Nasdaq’s current P/E is much lower than it was because the bottom lines of those 20 companies are much higher than they used to be. Back in March 2000, the Nasdaq’s 20 largest companies earned a collective $26 billion over the previous 12 months. In March 2015, it’s $167 billion.

That’s great for valuations, but it’s worrisome for growth. What’s more, the Nasdaq’s top stocks these days are not entirely made up of speedy tech firms. Retailers like Walgreen Co., Starbucks, and Costco are in the mix. Those companies are likely to slow down the pack. As a result, earnings at Nasdaq’s 20 largest companies are expected to increase 11% in 2015. Back in 2000, the group’s earnings were expected to grow 29% a year for the following five years. And that’s why Nasdaq stocks deserve a lower P/E than they did in 2000.

Of course, many companies in the Nasdaq didn’t do nearly as well as expected. Many went bust. But, as a group, they didn’t do so shabby either. Put aside that they are different companies. (If you own every stock in the Nasdaq, or an ETF that tracks the index, that doesn’t matter that much.) As a group, earnings at the 20 largest companies in the Nasdaq increased by an impressive 549% over the past decade-and-a-half, for a compounded annual growth rate of just over 13% a year.

For the group to repeat that performance, the Nasdaq 20 would have to earn a collective $600 billion a year by 2030. And if the group achieves that goal, growth at those companies will surely slow down beyond that point, which means the stocks of these companies will command an even lower P/E.

What’s more, consider this: Even after the earnings of the Nasdaq’s 20 largest stocks rose 549% in the past 15 years, the index isn’t any higher than it was a decade-and-a-half ago. Investors have been on one big and very long round trip, and, on an inflation-adjusted basis, they are still not back to where they were.

Granted, it’s entirely possible that the composition of the Nasdaq 20 will change significantly in the coming years. Perhaps we will see a brand new crop of tech firms with lofty growth expectations enter the fray. But the law of large numbers is hard to get around. And no matter how you slice it, 5000 is a pretty large number.

Here are 5 companies that first drove the Nasdaq above 5,000

It was the day the Nasdaq Composite index first closed above the 5,000 mark, and it got there due in large part to the irrationally exuberant belief that this Internet thing was going to lay an endless supply of golden eggs.

This assumption prompted investors to throw fistfuls of cash at any company whose name had a “.com” suffix, but in the case of some Internet companies, it was a mirage. The dot-com bubble burst, startups evaporated, and investors lost a catastrophic amount of money.